Viewpoint

Outsourcing Benefits U.S. Workers, Too

Outsourcing is a dirty word. In the U.S., outsourcing means firing full-time workers and shipping their jobs to a less developed country where wages are lower and labor laws are more lax. With U.S. unemployment closing in on 10%, and estimates of real unemployment (including part-time workers) climbing to over 15%, the idea of cutting American jobs and shipping them abroad is morally offensive to many.

So imagine my surprise when I found out that one small corner of the outsourcing business was going great guns—and that one of the fastest-growing destinations for outsourced jobs is none other than the U.S.

Online Contracting I came to this conclusion after reviewing the statistics of oDesk, one of several companies that connect people in need of skilled temporary work with employees who fit the bill. ODesk provides the infrastructure to make it easier to monitor, manage, and pay consultants working in remote locations. The number of hours worked on oDesk projects by contractors has risen threefold over the past 12 months. The rise of oDesk and competitors such as eLance illustrate how the world has become not only a freelance economy but also, by extension, an outsourced economy.

This outcome is driven by several key factors. First, the Internet makes it easier to assemble and manage remote teams of workers. Second, increasing economic pressures in the global economy spurred by the rise of the developing world as a global competitor have forced all firms to eliminate some full-time positions, and instead rely more on contractors.

Last, many small and midsize businesses now regularly need real technology help, whether it's to build Web sites and databases, craft user interfaces, or install software. They also need help to babysit and develop this technology. Small businesses were the least well-equipped and are the most under-resourced. So naturally they turned to the new global freelance market, at first for technology skills and then for help in marketing, accounting, and other areas.

Global "Smallsourcing" Some predicted that freelancing would wither under the financial crisis as firms cut spending for IT development work. But that clearly hasn't happened, if the numbers from oDesk are to be believed. Contractors offer a wide variety of skills, ranging from data entry to sophisticated computer programming. Customers vary from small businesses and sole proprietors seeking project help to large businesses that don't have internal skills for a certain type of job.

What's perhaps the most interesting facet of this new brand of outsourcing—which I call "smallsourcing"—is the truly global nature of the workforce and the work being outsourced. ODesk has contractors from dozens of countries, including China, Singapore, Russia, and Bolivia. At the same time, work is being outsourced to the U.S. from the United Kingdom, Canada, Australia, Spain—even Saudi Arabia and the United Arab Emirates. While the single largest percentage of oDesk work goes to contractors in India, the U.S. ranks No. 3. And the number of hours worked in the U.S. is growing at a pace of 267%, considerably faster than the 188% for India.

The salary differentials between India and the U.S. are far smaller than one might have thought, according to oDesk billing data. Indian workers were paid roughly $11 an hour on average and U.S. workers were paid roughly $17.50 an hour. But Americans receive higher evaluations for their work—an average 4.48 out of 5, compared with 4.12 for India. So the Americans don't have that much of a disadvantage. Companies readily pay a little more for higher-quality work.

Wage Pressure Cuts Both Ways True, smallsourcing pits workers in high-wage countries against those in low-wage countries. That will necessarily mean downward pressures on wages in developed countries for freelancers in specialties where foreign freelancers can easily compete. But smallsourcing could help raise the bar in locations such as rural parts of the U.S. In many of those places a $17.50-an-hour job is considered very solid and real estate prices are low enough to allow someone to buy a house with this level of take-home pay. Plus, highly skilled workers can make much more. Some with Web design and system administration skills earn $60 to $90 an hour.

As health-care expenses continue to rise and the costs of full-time employment grow in tandem, outsourcing inevitably will increase. Building a variable-cost labor structure is a necessity for many employers who need the flexibility to pay higher rates when the economy is good and lower rates when the economy is bad.

For the project workers who log in to oDesk every day to create their own job with decent pay, outsourcing is a wonderful thing—be it in Wyoming or New Delhi. Some have been forced from full-time jobs but many simply prefer to go it alone or to work with small groups. Scarred by a barrage of layoffs in recent years, these workers like the control over their lives and diversity in the source of paychecks.

In a world of uncertainty, one thing is certain: Outsourcing is thriving and will only get bigger—both in India and other foreign shores, but right here in the U.S. as well.

Vivek Wadhwa is vice president of Academics and Innovation at Singularity University, Fellow at Stanford Law School and Director of Research at Pratt School of Engineering at Duke University. You can follow him on Twitter (@wadhwa) and find his research at wadhwa.com.